The Sector Model had a good week, in spite of the XLF miss
during an XLI whipsaw (you’ll note that it has returned to XLI).

As I noted on the blog, Gold Coast Advisors' Sector Fund
actually MISSED the whipsaw because it was signaled so close to the end of
trading, and picked up about 1.2% that the model itself missed.

Since I only report the model’s behavior, I am not showing
that 1.2% gain on this chart:

I trade my own funds in parallel to Gold Coast’s trades, and
so my own live returns are reflected here.

Not a bad chart, even with the miss.

Just a quick note on how these models work:

Breadth, volume, and price normally go together.Momentum strategies invest when all three
agree.Mean reversion strategies invest
when they do not agree.

As I said, I have a mean reversion strategy.When the breadth and volume in a sector are
outperforming price, I invest in the sector with the greatest long term divergence.

I’d try to make it sound more complex than that, and I’m
always tinkering under the hood – but that disconnect is the heart and soul of
the model. Majority vote between breadth, volume, and price, usually wins.Occasionally price is right and breadth and
volume collapse, but it works out in my favor more often than not.

Since I don’t follow momentum, I will NOT be in the greatest
performing sector at any given time.I
just need to outperform the median for the market as a whole.A black box algorithm may outperform by
30-40%.I’m content with 20%.

I’ve tried to get greedy with the Full Model, to juice the
returns through fundamental selection.Most of my experiments have been abject failures – but 24% returns for
the Full Model is the kind of “failure” that leaves you still kicking to
experiment another day.

Interestingly, the goal has always been to outperform the
Sector Model, which is the benchmark for the Full Model.

And to that goal I continue to work.

But the Sector Model – the technical core – keeps the Full
Model afloat until I can find that sweet-spot between Technical and Fundamental
indicators that allows them to work together, instead of against each other.

As for the trades, I’ll set limit orders over the weekend
and let the trades strike at some point during the week.For a sell, I’ll add 0.2% to Friday’s
close.For the buy, I’ll add 0.1%.

If there is a large shift in the futures, I’ll add the
futures to Friday’s close and recalculate the limits accordingly.So a 0.7% gain in the futures at 6am on
Monday would leave me with Friday + 0.9% for the sell and Friday +0.8% for the
buy.

Then I walk away.

The market would drive me crazy if I didn’t have the model
to calculate for me.

In short:

Don’t get greedy, and don’t obsess.Those black boxes out there are designed to
play with your brain.Ignore them.

Live!

Leave the black boxes to fight each other, and the leave psychiatric
meds for the day traders.